February 17, 2018 is fast approaching. Anyone who is anyone in the toy industry will be at Javits Convention Center showcasing the latest and greatest in toy innovation. All businesses in the toy industry are putting the final touches on their displays and their presentations. Is a meeting with the company’s lawyer on the pre-show checklist? If not, why not?
Consulting with the Company’s lawyer may save a company tens, even hundreds of thousands of dollars. The following is a short discussion of some of the items that should be on every toy company’s “To-Do” list prior to attending Day One of the New York Toy Fair.
- Intellectual Property.
At the very least, the company should consider applying for a trademark registration for the name of the company and its products. Unfortunately, the number one thing most companies forget or ignore until there is a legal battle ensuing is to properly protect the Company’s intellectual property, such as its name and the names of its products. Trademarks for product names are fairly inexpensive to search and protect, and yet, may cost a company dearly if those names were to become the subject of a cease and desist letter and resulting federal court infringement litigation. We defended a toy manufacturer in a trademark infringement lawsuit that allegedly infringed a competitor’s trademark. After two years and in excess of $50,000 in legal fees (pretty inexpensive in trademark dispute litigation) the matter was resolved. Consulting with counsel and filing the appropriate trademark applications could have avoided the huge waste of time and expense.
Another form of legal protection often overlooked is copyright for the toy’s design. If the design meets the requirements of a sculptural work, such as a plush toy design, then copyright can be a powerful tool in locking out your competition from the use of designs that are “substantially similar”. Prior to any trade show, toy companies must identify and protect its intellectual property, or risk the very goodwill of the company. Intellectual property can give a company significant value.
- Privacy and Security.
Toy companies, like all companies, must take steps to protect the data of the company, minimize the risk of a breach, and put in place technological and legal measures designed to decrease liability in the event a breach does occur. A comprehensive privacy program including but not limited to updated privacy notices, terms and conditions, internal policies, incident response plans and insurance coverage all geared toward reducing risk of legal liability is imperative if the company is to survive. If the toys being showcased are “smart” or “connected” toys, privacy and security issues involving the Internet of Things will be at the forefront of manufacturers’, retailers’, and consumers’ minds. Retailers seeking to avoid liability undoubtedly will have questions as to how the software works, what, if any, personally identifiable data is collected, how is it being stored, retained and destroyed. Additionally, if a third party vendor will be used to provide software for a smart or connected toy, the company must seek counsel knowledgeable in privacy and security in order to reduce legal risk to the company that may result from the use of such software.
- Labeling / Advertising.
Federal law requires product packaging and certain advertisements for toys and games intended for use by children 12 years of age and under to display cautionary statements regarding choking and other hazards. Safety related labeling and advertising for toys generally depends upon the category of toy and the age of the child for which the toy is intended. It is imperative that toy companies be familiar with these laws and engage counsel who is familiar.
For more information, please contact:
(312) 368-0100 or email@example.com.
John Smith owned a small manufacturing business. One day he received a call from one of his competitors who said he was interested in buying John’s business. John was now 75 and this seemed like the perfect opportunity for him to retire and have that “nest egg” for him live comfortably in retirement.
John met with the buyer and they discussed, in general, John’s business. After the meeting, the buyer presented a letter of intent to John, which proposed a purchase price of $10,000,000, subject to the buyer’s due diligence investigation of John’s business. John felt pleased with the letter of intent and signed and returned it to the buyer.
During a long and protracted (and quite thorough) due diligence, the buyer and his accountants and lawyers examined the business and its books and records. Based upon their examination, they advised the buyer of various legal and financial risks that John’s business was exposed to and which could become issues that the buyer would have to face.
John could not produce all of his current contracts with his customers. The contracts which he had contained provisions which could cause the contracts to be terminated upon a sale of the business or a transfer of the ownership of the business. Their key employees had no employment agreements and could compete with the business once they terminated employment. The leases for the business’s facilities could not be assigned.
Despite the issues with the business, the buyer was still interested in purchasing the business. The bad news was that the revised purchase price was to be $8,500,000 with a significant portion to be held in escrow pending resolution of various legal issues.
The above scenario is very common with small business owners. Bigger companies who regularly acquire smaller companies are “professionals” in the acquisition business. They know exactly what to look for and they know how to “string the seller along” until they present a reduced offer which most sellers feel they have to accept.
If you are thinking of selling your business, make sure that your business is ready to be sold and that you have copies of all contracts and leases and that you understand what they provide and how they will be affected upon a sale. Have written employment agreements with all your “key employees.” Pay attention to your inventory, your accounts receivable and other assets which “drive the sales price.” Protect your intellectual property by obtaining patents, to the extent applicable, and trademarks.
If you are considering selling your business and would like a “legal check-up,” please do not hesitate to contact:
Morris Saunders at:
firstname.lastname@example.org or 312-368-0100.